For anyone moving into the passive income space, you may have come across a few jargon terms relating to passive income and financial independence.
And it’s useful to know and understand the differences between these things so you don’t get caught red-faced in your next discussion about passive income!
This article is focused on the difference between active income and passive income. These are two words commonly seen together in the personal finance space.
So what’s the main difference between active income and passive income?
The basic definitions are really quite simple:
Passive income is money that you earn without being actively involved. It’s the type of income that you can get from an investment or from a business that produces a recurring income without you having to work on it day to day.
Active income is money that you trade your time for.
For example, this would be the money you earned in your day job. Active income requires your continuous time and effort to create.
These are the basic definitions of passive income and active income. I could go into more detail here but what I’ve covered here actually covers most points.
How can you leverage these types of income to your advantage?
Everyone wants to earn passive income.
Who doesn’t want to make money while they sleep, right?
The trouble with passive income is that it can take a heck of a lot of work upfront to create. But once the work has been done, the money keeps coming in, month after month, year after year.
In my opinion, the work required to create a passive income stream is far outweighed by the incredible rewards it can produce.
People have created passive income streams in all sorts of industries, from affiliate marketing to real estate and the stock market. The opportunities are endless.
Some bloggers make a fortune online through sharing their opinions with others on topics they care about. While doing this they refer their readers to relevant products and services. In turn, they create amazing streams of passive income that keeps coming in years after those pieces of content have been published.
How do I know which passive income idea to go for?
I get it. The internet is full of wild and wacky passive income ideas you can use to create an income for yourself.
But which one should you settle for?
How do you even begin to comprehend what to go for when you just have so much choice?!
The best thing to do would be to do would be to find something you’ve got expertise in.
If you can find something that you’ve already got some skills in, you’ll have a head-start and make it easier for yourself. you don’t necessarily have to learn everything from scratch.
And with the huge list of ideas available to you in this day and age, you’re bound to find something that suits you really well.
What’s the ultimate goal of earning passive income?
Financial freedom of course! Anyone investing their money is looking for long-term residual income. People want to have the freedom to do what they want when they want. And passive income is how you can get there.
People all over the world are living the lifestyle of their dreams because they have set up passive income streams that pay them money while they sit on the beach sipping pina coladas!
We live in an incredible world where we can earn money without putting in time of effort. Of course, tons of time and effort must be put in at the start (unless you have lots of capital). But eventually, you’ll get to enjoy living a lifestyle that’s entirely customisable to your preferences.
Imagine waking up and being able to do whatever you wanted to do?
Travel the world. Sleep in all day. Attend language classes just for the fun of it. This is the wonderful freedom that passive income allows.
Bringing it all together
So now you’ve got the basic gist on the difference between passive income and active income. At the start of your journey, active income will be your main money-producer, but if you make the right choice, passive income can totally transform your life!
I’m a London-born millennial obsessed with online business, passive income and the digital economy. I love learning, researching and curating the most valuable resources to save you time, money and help you discover the truth on what it actually takes to achieve your goals.